Why Oh Why Can't We Have a Better Press Corps? (David Leonhardt of the New York Times Edition)

Ah. David Leonhardt writes:

This Glass Is Half Full, Probably More - New York Times: David Leonhardt: Wages haven't been falling.... Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980's or 90's, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don't vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation -- which is similar to the national increase -- is not especially impressive. It's certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990's boom, and pretending otherwise does not jibe with most people's experiences....

Many luxuries of earlier generations -- owning a three-bedroom house, flying across the country, calling relatives who live overseas -- are staples of middle-class life. If all this doesn't add up to a rise in living standards, I'm not sure what the phrase means...

This is not right.

Our three-bedroom houses are further out from the center than our parents'smaller houses were. We spend a lot more time stuck in traffic. I'm higher up in the American income distribution now than my parents were when I was my children's age, but I couldn't touch their house. I certainly believe that my family is better off now than we were back then, but this is because I very much like the replacement of book-intellectual-culture by internet-intellectual-culture that has accompanied the extraordinary technological revolutions in computers and communications. Others with different preferences would think differently.

To try to balance and appropriately weight all the changes of the past generation, we construct index numbers: median national real hourly wages up $1.25--11%--since 1979; but median national real hourly wages for males down $0.50--3%--since 1979. And real hourly wages for males at the 95th percentile up by $10 an hour--30%.

Men with less than a high school diploma: down from $13.93 of today's dollars an hour in 1979 to $11.04 today. Men with just a high school diploma: down from $16.32 to $15.07. Men with some college but not a bachelor's degree: up from $16.98 to $17.03. Women with less than high school: down from $8.94 to $8.547. Women with high school: up from $10.60 to $11.87. Women with some college: up from $11.38 to $13.60.

To get an even half-complete picture of what has been happening in the middle of the income distribution over the past generation, you need to know four more things in addition:

• First, at least as important as the (small) rise in median wages and salaries since the 1970s has been a large rise in risk: Peter Gosselin makes a convincing case that America's middle class is anxious today because it knows that its middle-class status is surprisingly fragile. See http://delong.typepad.com/teaching_spring_2006/2006/02/covering_the_ec.html
• Second, these real wage numbers have been calculated using the CPI--the consumer price index. Use of the CPI understates economic growth: as relative prices change, people substitute toward items that become cheaper (i.e., iPods) and away from items that become more expensive (i.e., houses with short commuting times), and so wind up better off than CPI-based measures of real income indicate. How much is this effect worth? My guess is between half a percent and a percent a year--say ten to twenty five percent since 1979. See http://www.j-bradford-delong.net/Comments/FRBSF_fast_growth.html.
• Third, to the extent that income is a relative rather than an absolute concept--and to a big extent income is a relative rather than an absolute concept--America's middle class will become discontented when the gap between them and America's rich overclass widens. The gap between America's middle class and the rich overclass has widened extraordinariy over the past generation. And this is, I think, doing a lot to mask increasing absolute living standards.
• Fourth, America over the past generation has done a lousy job in translating the inventions of our scientists and engineers into boosts to the living standards of average Joes and Janes. Eleven percent over twenty-five years is only about one-fourth of what we would have seen, given underlying technological progress, if the relative income distribution had remained the same.

In sum, Leonhardt says that median incomes have risen by eleven percent and that this makes today "the best of times in many ways. Americans are wealthier than previous generations... enjoy a higher standard of living. The good old days simply weren't as good as the present day.... [B]y most broad measures -- wages, average life span, crime, education levels, home ownership and racial and gender equality, to name a few--life in this country has clearly improved over the last generation." It's much more complicated than that: America's middle class sees itself as insecure--a feature that doesn't show up in averages or medians but that is very important in assessing welfare. It sees itself as facing a broader gap than ever between it and the overclass--which means that the children of the overclass are starting life's race with an even bigger head start. And as for Leonhardt's belief that "up and down the economic spectrum, [wages] have been higher in the last few years than they were at any point in the 1980's or 90's," that's not quite right: you can't claim that real wages and salaries for white males without much education are any higher today than they were a generation ago.

It's not that we are in general poorer than we were a generation ago (although unskilled males probably are). It's that we've been wasting a great deal of the potential benefits that should have accrued to us from the ongoing march of science and technology.

Now Leonhardt wants to take this in a political direction:

Democratic politicians just don't seem comfortable talking about the ways that overall living standards have risen, focusing instead on the recent stagnation in wages for rank-and-file workers. "We do talk negative about the economy," Rep. Rahm Emanuel, an Illinois Democrat, told me yesterday, adding that it comes in part with being the opposition party. There is a fear that any good news will somehow help President Bush, and there is also the admirable liberal tradition of agitating for the little guy, a tradition that helped end the Depression, crush Jim Crow and open up the economy to women.

But the Democrats' approach has a downside. With Mr. Bush less popular than he has ever been, they have become even more downbeat about the economy at a time when more than half of Americans rate it as good.... A couple of weeks ago, the spokesman for one House candidate went one better, saying: "This economy is terrible. Republicans are using lies, damn lies and statistics to say otherwise." In a country founded on optimism, this is a tough sell...

But Leonhart gives no examples. Democratic politicians say stridently that George W. Bush has mismanaged the economy--as he certainly has. But John Kerry doesn't think the country is worse off than in the 1970s. Rahm Emmanuel certainly doesn't buy into Leonhardt's proposition that the country is worse off and poorer than it was back in the 1970s. And dollars will get you doughnuts that the unnamed "spokesman for one House candidate" doesn't do so either.

In fact, Leonhardt quotes only one Democratic politician at any length:

Senator Barack Obama, an Illinois Democrat, has become something of a rock star in the last two years, and I think a big reason is that he speaks eloquently about all the economic progress the country has made and all the problems it faces. When you listen to him, you have no doubt that too many people are still struggling.... But Mr. Obama doesn't confuse the new insecurity with a general decline in the quality of life, and he insists... that doing nothing about disappearing pensions and blue-collar jobs is simply not an option. "It's not how our story ends -- not in this country. America is a land of big dreamers and big hopes," he said at a college graduation last year. "And it is because our dreamers dreamed that we have emerged from each challenge more united, more prosperous and more admired than before."

I was taught in high school to be very distrustful of people who have no examples to cite: if you are going to criticize the Whig interpretation of history, you had better know something about some Whig historians.

So I emailed David Leonhardt to find out which Democratic politicians he was thinking of. His reply:

I agree that Emanuel and Obama are eloquent when they do so, but they haven't been the party's standard bearers. And I don't think Kerry, Gore (in the 2000 campaign), Pelosi, Reid or Dean have been nearly as eloquent. That's why I cited Kerry's line about the shrinking middle class in the piece. Gore, after all, had the 1990's economy to run on and devoted much of his 2000 convention speech and campaign to discussing economic problems. I think he and Kerry were usually right about these problems, but their tone didn't resonate with many of the swing voters they were trying to attract....

I'd be interested to hear if you have a different take on this. I appreciate your taking the time to write.

David

P.S. It's not nearly as important as what the politicians are, or aren't, saying, but it still bears mentioning: You can also find one example after another of overly dour economic remarks in respectable left-leaning books and articles, like "What's the Matter with Kansas?" Last year, for instance, Tamara Draut of Demos wrote in her book "Strapped" that young workers were ''earning so much less than they used to.'' She also quoted another study that said, ''With the possible exception of having a larger array of entertainment and other goods to purchase, members of Generation X appear to be worse off by every measure.'' Surely this is wrong.

---

This Glass Is Half Full, Probably More - New York Times: David Leonhardt: HERE is a political Rorschach test for this midterm election year. What's your reaction to the following:

These are the best of times in many ways. Americans are wealthier than previous generations, they are healthier and they enjoy a higher standard of living. The good old days simply weren't as good as the present day.

If that makes you a little squeamish, the odds are good that you generally vote Democratic. You see a lot of real problems %u2014 widening inequality, a big federal budget deficit, melting icecaps %u2014 and you have a hard time believing that the country has never been richer.

But the fact that by most broad measures -- wages, average life span, crime, education levels, home ownership and racial and gender equality, to name a few -- life in this country has clearly improved over the last generation.

And most Americans think about their lives in these terms. In polls, even low-income people generally say they are better off than their parents were, probably because most are.

Yet many Democratic politicians just don't seem comfortable talking about the ways that overall living standards have risen, focusing instead on the recent stagnation in wages for rank-and-file workers. "We do talk negative about the economy," Rep. Rahm Emanuel, an Illinois Democrat, told me yesterday, adding that it comes in part with being the opposition party. There is a fear that any good news will somehow help President Bush, and there is also the admirable liberal tradition of agitating for the little guy, a tradition that helped end the Depression, crush Jim Crow and open up the economy to women.

But the Democrats' approach has a downside. With Mr. Bush less popular than he has ever been, they have become even more downbeat about the economy at a time when more than half of Americans rate it as good, according to the most recent New York Times/CBS News poll.

In his 2004 convention speech, John Kerry argued that "our great middle class is shrinking." A couple of weeks ago, the spokesman for one House candidate went one better, saying: "This economy is terrible. Republicans are using lies, damn lies and statistics to say otherwise."

In a country founded on optimism, this is a tough sell.

ONE of the most influential political books of the last few years has been "What's the Matter With Kansas?" by Thomas Frank. Published during the 2004 campaign, it neatly captured the Republicans' success in using social issues to attract blue-collar Kansans who don't really benefit from Republican economic policies.

"All they have to show for their Republican loyalty," Mr. Frank writes, "are lower wages, more dangerous jobs, dirtier air, a new overlord class that comports itself like King Farouk," and a culture in "moral free fall."

The book was a New York Times best seller for 35 weeks.

But close inspection uncovers a big problem with Mr. Frank's economic analysis. Wages haven't been falling in Kansas. Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980's or 90's, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don't vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation %u2014 which is similar to the national increase %u2014 is not especially impressive. It's certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990's boom, and pretending otherwise does not jibe with most people's experiences.

More to the point, some other improvements have accelerated recently. In just the last 15 years, the murder rate has been cut almost in half. Many big cities are far more vibrant places than they used to be. About 33 percent of young adults get a bachelor's degree these days, up from 25 percent in the early 1990's. The gap between men's and women's pay reached its lowest ever last year. The divorce rate has stopped rising.

Many luxuries of earlier generations %u2014 owning a three-bedroom house, flying across the country, calling relatives who live overseas %u2014 are staples of middle-class life. If all this doesn't add up to a rise in living standards, I'm not sure what the phrase means.

Senator Barack Obama, an Illinois Democrat, has become something of a rock star in the last two years, and I think a big reason is that he speaks eloquently about all the economic progress the country has made and all the problems it faces. When you listen to him, you have no doubt that too many people are still struggling, and you even start to wonder whether the next quarter-century will be as good as the last one.

But Mr. Obama doesn't confuse the new insecurity with a general decline in the quality of life, and he insists, in almost Reaganesque language, that doing nothing about disappearing pensions and blue-collar jobs is simply not an option. "It's not how our story ends %u2014 not in this country. America is a land of big dreamers and big hopes," he said at a college graduation last year. "And it is because our dreamers dreamed that we have emerged from each challenge more united, more prosperous and more admired than before."

By taking the opposite tack, you can sell a lot of books or attract a lot of visitors to your blog. But you'll be elevating nostalgia over reality, and most Americans will know it.

Comments

[Aaron Silverman]

I'm just an opera singer, but has anyone done studies of hourly wages that take commuting times into account?

[Eleanor]

My perception, having grown up in the 1950s and 60s, is that economic life in the U.S. is less comfortable and more uncertain and scary for people like me (white, college educated, raised in the belief that I personally was pretty secure and things were going to get better). A lot of this perception is the collapse of health care and threats to social security and the destruction of an economy that actually produced things and had a lot of good union jobs. There used to be a solid blue colar working class below the middle clas. Now there is an abyss. If you fall now, you fall a long, long way.

[trotsky]

Prof. DeLong,

Is the house in question in the Bay Area? Because that's a unique market. There are whole states in the Union where the housing prices bear a relation to what people can pay.

[Vergil]

The biggest difference I believe is that a generation ago, the one-income household was standard. Today it seems like for many people, two-income households are a necessity to cling to any notion of being middle-class.

[SteveH]

Did Brad actually write this sentence: "Use of the CPI understates economic growth: as relative prices change, people substitute toward items that become cheaper (i.e., iPods) and away from items that become more expensive (i.e., houses with short commuting times), and so wind up better off than CPI-based measures of real income indicate." People with iPods who spend a great deal of time commuting are "better off" than people with homes with shorter commuting times? Not in my world.

[kharris]

Leonhardt's tut-tut tone is a big part of the problem. Like his right-wing masters (whether he recognized them or not), he is attributing thoughts to Democrats that Democrats may not think. It's no fun writing that Democrats have a point, but have pushed it too far. Democrats need to be wrong in order for the story to be really good. So just make them wrong - what's the harm in that? The story is what Leonhardt wants the story to be, not what is actually in the world. NYT morphs into NRO.

[PaulC]

Pelkabo: "Our three-bedroom houses are further out from the center than our parents' smaller houses were? Most people consider that a benefit."

Prices go up as you approach centers of employment and culture. This is not an exception, but the rule. It is true that slums of old, failed urban centers have low prices and high vacancy rates but I would consider that more of an exceptional case than a rule. I agree that most people don't want to live in a dense urban centers (though the ones that want to live in Manhattan or San Francisco, for instance, will pay a very high premium for it--another exceptional case I admit).

I think it is true that most people would rather have a 5 mile car commute than a 60 mile commute. The key factor sending people out to subdivisions with few nearby jobs, established schools, or entertainment and culture purely a "bang for buck" decision about the housing market.

Most people would rather have a 3000 sq. ft. new house on a 1/2 acre than an 800 sq. ft. Manhattan apartment. But most people would rather if that house were 5 miles from their job than 60 miles. The fact that some people settle for 60 miles is not because they want to get away from the center, but because the equivalent house within 5 miles is far more expensive.

[Cranky Observer]

I would guess that everyone reading this blog could survive any reasonable situation life and fortune can throw at them, short of an absolute economic collapse / depression. That's not the problem.

The problem is the guy with a high school education at best who used to be able to get a job at the steel mill, in the auto plant, as a mechanic, on the ranch. Doing work he enjoyed to a certain extent, earning a reasonable living, and perhaps boosting his kids to the next level. Those people still exist - lots of them. They don't have advanced degrees and never will. They might read blogs, but not economic theory blogs. They aren't engineers or computer programmers, don't want to be, and probably can't be even if they try.

What are these people going to DO in the 2010-2060 time frame? Work at micky d's for $8/hour? That's a recipe for social stability.

Cranky

[Cranky Observer]

> Our three-bedroom houses are further out
> from the center than our parents' smaller
> houses were? Most people consider that a
> benefit.

The majority of Americans live in urban megalopolis-es. The megalopolis-ness of their surroundings has crept up on them after 30 years as they moved farther and farther "out" (from what at this point is hard to say), but each time urbanness came along and engulfed the semi-rural nature of "out". Take a look at the Chicago metropolitan area: Joliet to Elgin to Zion is now essentially one giant suburban triangle (I exaggerate a bit in the case of Elgin, but it is going that way).

Having moved from a central city to one of these exurban "paradises", then gone to a true small town and a small central city, I return to the megalopolis to find myself astonished at (1) how unpleasant the quality of life is. Driving along consumes 20-30% of my family and friends' waking hours (2) how little the people who live there notice this. They don't even seem to understand that there is a way of life that doesn't involve sitting in stop-and-go staring at a windshield 3 hours/day. It is literally inconceivable to them.

So I would be a bit careful in assuming that exurb = better.

Cranky

[Karlsfini]

"What are these people going to DO in the 2010-2060 time frame?"

Cranky, I think you mean, what are "Americans" going to do? Please continue asking this until we get an answer.

In comparisons of wages then and now, shouldn't the discussion be carried one step further -- shouldn't a paycheck also be measured by its worth in the world at large, not just in the U.S.

The original Arthur Frommer guide, I believe, (from the '60s?) was "Europe on $5 Dollars a Day."

Internationally speaking, in 1960 a worker at McDonalds -- in the U.S., as they all were then -- was far richer than one today.

[camille roy]

"The biggest difference I believe is that a generation ago, the one-income household was standard. Today it seems like for many people, two-income households are a necessity to cling to any notion of being middle-class."

This is absolutely true, and because the statistics quoted don't reflect this, I am skeptical of the statistics.

The core expenses of a family: housing, medical care, transportation, education, food, misc.

Most of the big ticket family expenses have soared: medical, housing, education. Gadgets are cheap. What does that have to do with maintaining the basics of family life? If wages have gone up modestly since the 70's, then no wonder people feel strapped, no wonder they can't save. They are struggling to cover the basics.

This NYTimes article made me hit my forehead in frustration. Can you say 'clueless'?

[Mike Huben]

Do any of these measures of median earnings include deferred earnings such as retirement benefits?

The sea change from company retirement plans to individual retirement funds could represent both an increase in insecurity and a vanishing, uncounted component of income.

[Kate G]

Oh, this column explains the incredibly moronic lecture I received from my husband's glibertarian friend a few weeks ago when he was over here boring away on another topic. We wound up in exactly this debate, with him asserting that all of america's problems would magically dissapear if "people would only accept the same standard of living they did 30 years ago." I kept pointing out that "houses of the same size" and "schools of the same quality" were not "in the same places" as they had been 30 years ago, and that though they came with more ameneties the cost of those ameneties (or renouncing them) would not offest the costs of the things my parents *could* afford that we can not--college educations for our children? health care adequate to our needs? Job security? single career family? Fewer child care issues (as a result of at home mothering) etc...etc...etc...

The purpose of these articles is to sow confusion, to blind people with numbers, nad to create a vague sense in the reader that problems will just go away if *someone else* looks at them just right. After all, my husband's friend wasn't proposing to lower his own standard of living, just hoping that if everyone else did that would magically free up more stuff for him and his 2.5 children.

Kate G

[howard]

stunningly enough, in most respects, people living through the Depression were much better off than people living at the time of the Civil War.

so i guess they were just a bunch of whiners, with that silly FDR the worst of all....

[a different chris]

People exclaiming "what about the two-income family" are so right.

The addition of women into the higher-paid (more than teachers, maids and secretaries) workforce is just not considered in these things, I don't know why. The unleashing of 1/2 the population's intellect made the pie way bigger than it would be otherwise.

But the numbers don't lie: a chilling amount of that extra pie went to a rapidly shrinking subset of the population.

I have a lot more "obvious" money than my Dad did. (By "obvious" I'm waving my hands at the fact that, 8 years after his retirement and 9 years after his death, his employer is still paying for Mom's healthcare. Anybody think their spouse is gonna see that?)

But: I have a MS and work 50 hrs a week. Since I'm freelancing, the only way to get even close to what you're worth, I gotta pay an accountant, do my own fights with medical insurance, etc.

He had a BS, worked 40 and was at 4 weeks paid vacation at my age. Six by the time he retired. My wife has a 2-yr and works another 24 hours. My mom had no degree and didn't work.

So for our extra 4 years of education and nearly double the work hours, do we live remarkably, noticibly better than Mom and Dad?

Excuse my language: Fuck no.

"Workin' makes me start to wonder where,
Fruits of what I do are goin'?
He says in love and war
All is fair.
But he's got cards he ain't showin."

And as somebody also pointed out, if you are forced to go "downstairs" in the economy that first step is a doozy.

As an aside, what the hell was Obama doing with that very last clause:

>And it is because our dreamers dreamed that we have emerged from each challenge more united, more prosperous and more admired than before."

And "more admired"????? Certainly true over the time period (but Bush/Cheney are working hard to roll that back) but what kind of people worry about how much others "admire" them???? Seems like a few bits of the Bible are dedicated to eviscerating that particular attitude, to say the least.

[Cardinal Fang]

A different Chris wrote:

'By "obvious" I'm waving my hands at the fact that, 8 years after his retirement and 9 years after his death, his employer is still paying for Mom's healthcare.'

Wow, Chris. Generous employer. They let your dad keep working for them for a year after he died?

[Kate G]

Cardinal Fang,
No one expects the spanish inquisition on Brad's blog. Lay off Chris' zombie dad.

kate G.

[Rebecca Allen, PhD, ARNP]

From my perspective, he's missing 3 huge issues: (1) The rise in insecurity; (2) the rise in inequality, and (3) the decline of economic mobility. That last, in particular, is a social time bomb: when people start perceiving that they can't move up, that the deck is overwhelmingly stacked against them, they lose interest in respecting and preserving the society. The result is often an increase in social disorder, decline in achievement motivation, etc. In other words, if we keep on our present path, we risk looking like Latin America in another 30 years or so. I don't know why anyone would consider that a desirable outcome.

[Lee A. Arnold]

Mr Leonhardt is correct to warn the Democrats to make sure that their rhetoric about the economy is clear, and shows by his own confusion why that clarity will be necessary. The Democrats might, for example, remember to state that living standards are (generally) rising, as has been (generally) true for 250 years, but that we also have higher inequality, less class mobility, increasing debt, exploding health costs, and greater job volatility. Much of the misconception in the present article hinges upon what he means by "middle class," (always the worst-defined phrase!) which he mixes with the terms "rank and file," "blue collar," and "median income." For example, he writes: "Many luxuries of earlier generations — owning a three-bedroom house, flying across the country, calling relatives who live overseas — are staples of middle-class life." But of course, on the median income he had previously been discussing ($45,000/year?) this is nearly impossible. Mr Leonhardt himself wrote far more clearly on some of these topics in his participation in the NYTimes' "Class Matters" series a year ago (http://www.nytimes.com/indexes/2005/05/15/national/class/)

[Lettuce]

Cranky Observer:

I'm here to tell you you're wrong.

I'm that guy. High school diploma, took five years to get it. No college degree.

And, yet, here I am.

Don't be so certain of what you know.

[Emma Anne]

I love my iPod. I listen to audio books and it is a real benefit in my life. But I can't say it quite makes up for the fact that our health insurance costs go up dramatically every year. And we're the lucky ones - we *have* health insurance.

[anne]

http://www.nytimes.com/2005/06/06/opinion/06herbert.html?ex=1275710400&en=c03b1056decb6b77&ei=5090&partner=rssuserland&emc=rss

June 6, 2005

The Mobility Myth
By BOB HERBERT

The gap between the rich and everybody else in this country is fast becoming an unbridgeable chasm. David Cay Johnston, in the latest installment of the New York Times series "Class Matters," wrote, "It's no secret that the gap between the rich and the poor has been growing, but the extent to which the richest are leaving everybody else behind is not widely known."

Consider, for example, two separate eras in the lifetime of the baby-boom generation. For every additional dollar earned by the bottom 90 percent of the population between 1950 and 1970, those in the top 0.01 percent earned an additional $162. That gap has since skyrocketed. For every additional dollar earned by the bottom 90 percent between 1990 and 2002, Mr. Johnston wrote, each taxpayer in that top bracket brought in an extra $18,000.

It's like chasing a speedboat with a rowboat.

Put the myth of the American Dream aside. The bottom line is that it's becoming increasingly difficult for working Americans to move up in class. The rich are freezing nearly everybody else in place, and sprinting off with the nation's bounty.

Economic mobility in the United States - the extent to which individuals and families move from one social class to another - is no higher than in Britain or France, and lower than in some Scandinavian countries. Maybe we should be studying the Scandinavian dream.

As far as the Bush administration is concerned, the gap between the rich and the rest of us is not growing fast enough. An analysis by The Times showed the following:

"Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000."

The social dislocations resulting from this war that nobody mentions have been under way for some time. But the Bush economic policies have accelerated the consequences and intensified the pain....

[George]

I think the author should read the column just below his on this blog. As a college educated, white-collar worker, I know that my life is not as easy as my mother's was, and she had a high school education, was divorced, and emigrated from a communist country. That's not to say she didn't work hard, but there seemed to be some sort of social safety net if things went bad. I feel you can't find that anymore.

With the cost of medical care, the cost of a college education, the cost of necessities increasing daily, with job security nothing more than a long-lost dream, I don't understand how the author could make such ridiculous claims.

[Karlsfini]

Kate G., you might remind your hubby's friend that technological advances, such as particle board and plastics, not increases in wages, have made bigger houses affordable. If you were to go "back" to a new 1890's house built with the materials and techniques they used then, the cost per sq. ft. would be astronomical.

In the same way, in the '60s a computer cost millions, so we're all millionaires by those terms.

There must be a rhetorical term for this kind of false argument -- isn't it called "the missing middle" or something?

[vtcodger]

While I tend to agree with Brad DeLong more than I do Mr Leonhardt, I'm not sure that this is your typical "Why Oh Why Can't We Have a Better Press Corps?" Item. I think that Leonhardt may have on the whole played fair. The metrics he is using don't measure what they purport to measure very well, but that's far from obvious. And it isn't easy to purpose an alternate set of metrics that are better.

Perhaps what we should be saying is purchasing power based measurement of American living standards for the wealthy became largely irrelevant sometime in the first half of the 20th Century and for the middle class around 1960. (They may still be relevant to the poor). Is a modern millionaire's wife who may well do some of the cooking and household chores better or worse off than her counterpart of 1900 who had to manage a cast of probably fractious and marginally competent servants? Is a modern college student who will leave college with a whopping debt load presented with a better deal than her 1960s counterpart who needed to work Summer and part time jobs, but left college debt free? Damned if I know. Is a middle class Japanese who does not own a car (because he has no place to park it and driving in Japan is an exercise in frustration) better or worse off than his American counterpart who has three of them? How do you quantify any of these things?

Until some thinker comes along, and one will I'm sure, who can tell us how to measure and compare standards of living of those who have essentially all the material goods they want, maybe we should frame these questions in terms of quality of life rather than standard of living.

[Barry]

"Is the house in question in the Bay Area? Because that's a unique market. There are whole states in the Union where the housing prices bear a relation to what people can pay."

Posted by: trotsky

Meaning, in areas of the country where fewer people live, and in which there are fewer jobs.

[Rich C]

There's a lot of variety in the different real wages / real compensation numbers. Using the data from the EPI website (in the datazone section) the weekly earnings of production and non-supervisory workers fell from $539.72 (in 2003 dollars) in 1978 to $519.56 in 2003. Or, by this measure of real wages, they fell for appoximately 80% of American workers by 3.7% on average.

Obviously, you will get different results if you use a series that includes managers and supervisors (whose wages have no doubt grown rather than fallen) and if you use the employer-cost-of-employee-compensation series. But the former is clearly distorted by the effects of growing ineqaulity (in a more direct sense than the one Brad raises) and the latter distorts the picture by including employer payments for health care without substracting employee out-of-pocket expenses, and also by including employer matches to 401(k)s without subtracting employee contributions.

Also, the employer cost series does not adequately reflect the fact that only about 42% of US workers receive any retirement benefit and only about 65%-70% receive any health care benefit. I think that the deeply screwed up social insurance systems for health care and retirement in the US so badly distorts the employer compensation cost series as to make it worse than useless.

Therefore, it is reasonable to say that in fact real wages for US workers have declined since the Carter administration (a point Tom Frank has made and which Leonhardt seems to be contesting), albeit that they have increased handsomely for some privilaged segments of the workforce (professionals and the corporate bureaucracy), and that not all employers have benefitted from this real wage decline (eg those that continue to provide health care and real retirement benefits).

[Urinated State of America]

"I'm higher up in the American income distribution now than my parents were when I was my children's age, but I couldn't touch their house."

I wonder how much the run-up in house prices has inhibited not only entering the housing market, but trading up? A few years ago I might have thought about moving from my present house into Noe Valley or over to Berkeley: out of the question now.

[mpowell]

I think a properly constructed single-payer health care system in the United States would be a good idea, but I have to object to people complaining about "escalating health care costs". I have never seen any evidence that the cost for a similar quality of health care has gone up over time. The problem here is that "health care adequate to our needs" in most people's minds is the best health care available. There's nothing wrong with that, but as health care options improve, they also cost more. And if we as a society spend an increasing share of our income on health care that just goes to show that taking care of other needs has just grown cheaper in comparison.

Does anyone have any evidence that quality/cost has increased over time? B/c that's the only metric I'm interested in.

[anon]

Perhaps I am predjudiced by reading this post/series of comments a few days after my husband received an email begging for help from an old work acquaintance just arrived in a homeless shelter. This person has a MS in CS, worked in the computer industry and taught as an adjunct at City College for years, and then was stricken with health problems. Would such a person have ended up on the street 30 years ago? I doubt it. Thirty years ago there were good benefits that went along with professional jobs, and companies didn't routinely "lay off" older workers. This risk of total disaster is what makes people conclude that they are worse off, even if they are objectively making a similar or slightly higher wage.

[kharris]

mpowell,

Neither you nor I know what is in most people's minds. We gain no ground toward finding good solutions by asserting that we do. Leave that to the pollsters, and hope they ask the right questions.

Without knowing what is in peoples minds, we can know that there is a growing number of people in the US without medical insurance, and that for those without such insurnance who are also not independently wealthy, simple access to health care can be prohibitively expensive. This is again an issue of the divide between them that's got and them that's not. Doing an average of an aggregate might tell us whether in the health care industry, technological advance has worked its usual magic. It would not, however, be a good representation of general welfare changes.

[trostky]

Barry,

In isolated backwaters like Chicago, Dallas and Houston, a family with the median income can afford more half the homes on the market, according to the National Assn. of Homebuilders. (Link: www.nahb.org/hoi; look for metro areas ranked by affordability.)

The similar figure for San Francisco is 7.8 percent, for Oakland-Fremont-Hayward (which likely includes Berkeley), it's 9.4 percent. California housing prices are insane, but the same is not true everywhere.

[SteveH]

Forty years ago, on one income, my parents bought a house larger than the one I own now and the total price was approximately one year's income. My current house would cost approximately 5 years income of my TWO EARNER household. My income now is probably about as far above the median income as my parents, but with mortgate and health care costs we seem to live with considerably less room for savings and for occasional treats such as vacations.

[Kevin Hayden]

You've really nailed down the differences, Brad. When I think of my workplace and income/outgo now versus then, I see less job security, overpriced healthcare and education (both adjusted), added daycare costs for younger families, no pension, and the knowledge that my taxes are supporting a federal government that frightens me daily with fresh scandals and atrocities.

Yeah, the technology revolution is the one big plus; in fact, it's also the sole economic driver I saw that made the Nineties different than the first two decades of my adulthood.

And for that, technology gets kicked in the teeth by the anti-progress intelligent designers and faith-based phobics, as well as the fear-based reactionaries who'd line us up against a wall for public executions because we speak out against perpetual warmaking and its sidekick, profiteering.

Economic glumcasting is hardly a central message of the national Dems in recent years, but in depressed regions, where lousy policy has been part of the problem, it is, and should be, central.

A retiring boomer with unstable healthcare, a black male under thirty, a laidoff Rust Belt autoworker, the homemaker saddled with the dual costs of daycare and caretaking (their elderly parents)..... there are plenty who won't buy the Bobby McFerrin song of Mr. Leonhard. And the deficit spending of households and governments adds another huge risk, as well.

I suspect Leonhardt enjoys a somewhat privileged circle of existence because all but a handful of friends and family in my circle - most of them homeowners - feel very threatened and most work overly long hours, so they're feeling pretty exhausted, too.

[serial catowner]

30 years ago, as a blue-collar unskilled worker, I had a civil-service protected job with full healthcare, retirement, vacation and educational benefits. Because my wife was also working, we not only owned our own home but also were purchasing a second house.

We ate food from local farms (now paved over for warehouses), salmon (now almost extinct), and enjoyed visiting the library in the evenings (now an hour and half on the bus because of traffic and parking restrictions).

Yes, we were simple people, but it sure beat the quality of life today.

[spencer]

Since David Leonhardt made this a political article blamming the Democrats let us go ahead and make it a true political story and look at what has happened under the democratic and republican economic policies over the years.

From 1960 to 1980 real per capita income growth averged some 2.9% per year. This is the golen era we keep refering back to.

So in 1981 we instituted the supply side economic policy that tax cuts for the wealthy would increase savings and investment and make up all better off.

So over the 12 years of the Reagan and Bush I administration we experienced average real per capita income growth of 1.2%.

Clinton came in and changed economic policy and guess what, over the eight years of his term real per capita income growth rebounded to 2.9% - the same as from 1960 to 1980.

So under Bush II we reverted to supply side economics and guess what, real per capia income growth has averged 0.7% since he became President.

PS -- the real per capita income data I'm using is deflated by the PCE deflator not the CPI so Brad's valid critism of the CPI bias do not apply as much to this data.

But if you adjust this data for the increase in income inequality you find that all of the gains in middle class real incomes over the last quarter century occurred during the Clinton administration.
David Leonhardt brought this up deep in his article but passed it over as insignificant.

So what you find is that during Rebublican administrations the middle class has fallen behind but so far has been able to more then offset that damage under democrats.

That is the real significant message the democrats should be sending and David Leonhardt is correct in pointing out that they are doing a poor job at this.

So is the real problem that the democrats do not have a massive "spin" machine that does a great job of providing technically correct data that is completely misleading.

That is what the Republicans do and they obviously did a great job of fooling David Leonhardt .

[RedCharlie]

To continue along kharris' reply to mpowell, for the over 80 million Americans who have no insurance, inadequate insurance, or are in danger of losing their insurance, the cost of health care can become exhorbitant.

Health care providers, especially hospitals, and pharmacies routinely set a base price for their services that is much higher than what insurers will pay. I am not sure of the perverse market conditions that lead to this situation, but anyone with insurance can confirm this by looking at their own benefit statements from their insurance provider.

Health care costs are decided on a field of battle between insurers and providers. You can make your arguments about which side is overcharging who, but it's clear that the uninsured are caught in the crossfire. God forbid that you own your own home or have any assets and are uninsured. There is literally nothing to stop a hospital from charging you whatever they wish for any service provided.

I think I read somewhere that a plurality or majority of bankruptcies are health care related. This is a major reason that the middle class is insecure. Losing your job can mean a quick decent into poverty, not only because of lack of income, but also because of lack of insurance.

[Kate G]

RedCharlie is right,
there is, as far as I know, no independent market for health services, even limited ones, in which an uninsured person can pick and choose, paying on a fee for service basis, and not get gouged beyond reason. It simply doesn't exist. So the health care market my parents faced thirty years ago, where they could choose to pay out of pocket for limited child medical needs isn't avialable to people. Its not a question of getting people to settle for the same medical care as before (not "the best") You couldn't even afford well baby care if you weren't insured or you couldn't find a clinic to take pity on you.

Kate G.

[anne]

Blue Cross/Blue Shield sent along a typical health care policy to the office, and the price for a reasonable policy was $567 a month with a $400 deductible and co-payments for virturally every service other than selected vaccinations.

[C.J.Colucci]

I'm old enough to remember when a $10,000 job and a $30,000 house meant you were a well-off white-collar worker.

[howard]

anne/kate g. (and others), you might be interested in this kaiser foundation study of employer health benefits, 2005:

http://www.kff.org/insurance/7315/sections/upload/7375.pdf

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6535&u=99|1|...

Yellow Warbler Perched on a Rock
New York City--Central Park, The Pool.

Thanks for the fine reminder, Howard :)

[Doug K]

Kate G - 'glibertarian' is a fine coinage, I'm going to remember that one.

I wish I had the standard of living my father was able to give me 30 years ago. We had a house with pool on half an acre, my mother stayed home, my father's commute was 20min. He was an English teacher, no spectacular earnings - I started making more money than him when I was twenty-eight and he was late 50s. I won't ever be able to afford the house, the commute, or the single-income family..

Measuring 'standard of living' by the size of the TV sets, number of cars, etc, is mere humbug.

[anne]

This is a thoughtful but worrisome thread :)

[Robert Waldmann]

Watch out for metaphor inflation "dollars will get you doughnuts" will be even odds eventually.

Leonhardt's reply was pathetic. He didn't come up with an example and tried to change the subject to "eloquence" and non politician Tamara Draut.

Having been called out he should have said he made a mistake and asked about the CPI business. Then he could write a decent article about how the glass is 56.25% full but teatering on the edge of the table.

By the way, compared to your usual take on the CPI, you left out the larger criticism -- new goods. iPods don't just cost less than they used to. The price of an iPod was infinite in 1979. New goods are ignored completely in the CPI, which is calculated as if they are perfect substitutes for old goods. In the past you have claimed that this implies an understatement of increased standard of living on the order of 1 % or twice as large as ignoring substitution of existing goods as relative prices change.

That would make the glass 68.75% full so it would fall off the table and crash.

[still working it out]

Consider:

1) We have gone from single income households to dual income households which has pushed up GPD because we earn more. But offsetting this is the amount of household services such as parenting and housework has decreased. GPD should also have decreased by the cost of those household services because they are now being done at a reduced level and with time that previously was used for leisure. This should have decreased GDP by around 20 hours per week per household at the median wage of women. This reduction is compeletely missing from the calculation of household income.

2) CPI will tell you that the cost of a car has decreased in real terms because you can buy a better car for less. Well, does that take into account it takes twice as long to drive the same distance? If you properly account for the cost of those non-productive driving hours then the cost of driving has probably gone up. But CPI does not reflect this.

There are loads more problems like these with the measures of GPD and inflation.

[still working it out]

A while ago I tried to work out why the price of housing could skyrocket without seeming to have any effect on inflation. I eventually found out a lot of things which are best summarised in the two below articles.

http://www.gillespieresearch.com/cgi-bin/bgn/article/id=343
http://www.gillespieresearch.com/cgi-bin/bgn/article/id=344

I discovered things like "owner's equivalent rent", "hedonistic adjustments", "geometric" as opposed to "arithmetic weighting" and realised that the whole process of calculating inflation and hence GDP and real wages is, to put it kindly, extremely arbitrary. If you put it crudely you would say its complete BS. I just don't believe they are accurate for a few reasons.

1) The methods used to calculate CPI involve alot of arbitrary adjustments which are little more than guesses.

2) A people involved in calculating CPI have strong incentives to understate it. One example among many is that it decides the level of social security payments.

3) There really is no independent verification of CPI. No-one has the resources to independently calculate it themselves and there is no simple non-subjective check that can say whether it is credible, or whether the assuptions underlying it are correct.

4) There only needs to be a small systemic bias in the assumptions used to calculate CPI for it to be understated by a considerable amount over time. It doesn't take much to change the CPI from 4.0% to 2.5%, but the effect over time is enormous.

[trotsky]

By the way, a very (OK, somewhat) interesting story on the topic in the NY Times last weekend: tinyurl.com/zsptz.

Amazing datum (from the chart) is that in 1901 Americans spent 43 percent of their income on food. Today it's about 13.

The share for housing, though, has 23 to 33 percent, with an even bigger jump in New York (and Berkeley, no doubt).

[Slocum]

This is not an argument you win by statistics, I don't think--this is an argument that either wins a party (or loses a party) support one voter at a time based on how that particular voter sees his own situation. Does he feel better off than his parents? Do most of his friends live better now than the families he knew as kids? If so, statistics aren't going to convince him the country's going to hell, and the party that keeps making that claim is going to seem like a bunch of tiresome whining eyores.

This is part of the "Kansas" phenomenon. People realize that their lives are better than their parents in so many ways--houses and cars are bigger and better, food is cheaper and better, entertainment options are *much* cheaper and *much* more numerous. Long distance phone calls and air travel used to be prohibitively expensive. Brad's Berkeley housing experience is NOT representative. We know, for a fact, that houses are getting bigger while the number of people living in each house is shrinking. Many single people now live alone in homes they own (very unusual 30 years ago).

Furthermore, even though by financial measures, inequality is increasing, many middle-class people now live lives that were characteristic of the wealthy when they were growing up (multiple cars--with leather seats and A/C, mobile phones, caribbean cruises, computers, microwaves, frequent restaurant meals, home theaters, movie libraries, vaulted ceilings, whirlpool tubs). And that leaves out luxuries things that even the wealthiest didn't have 30 years ago--digital cameras, car navigation systems, iPods, portable video, and obviously, the internet.

Also, communities have changed so that even lots small, indistinguished cities have amenities that only sophisticated places used to have. In 1975, how many cities in the U.S. had any place at all that you could find cappucino, sushi, gumbo, curry, or bagels? How many had 20,000 square foot book stores with tens of thousands of titles?

And even job security is not quite what it seems. A single job might have been more secure then, but a two-income family has a layer redundancy that most families a generation ago lacked.

But the bottom line is being the 'eyore party' is just NOT a recipe for electoral success.

[liberal]

Slocum wrote, "Brad's Berkeley housing experience is NOT representative."

While it might not be true for everyone, it's certainly true for a substantial fraction of the population.

"We know, for a fact, that houses are getting bigger while the number of people living in each house is shrinking."

Yes, but as pointed out above, oftentimes size is traded for distance from city center and results in a longer commute.

"Many single people now live alone in homes they own (very unusual 30 years ago)."

Perhaps. How many of those "homes," though, are condos?

[dilemmanade]

In the fifties my dad-- high school education, no training-- got an entry level apprentice position at one of the big aircraft companies. On that salary he could support four kids and a wife who didn't work outside the home, and buy a house for us all to live in. He had medical insurance and a pension plan, too.

I'm supposed to believe my generation is better off because we have ipods? Uh, no.

[lemuel pitkin]

these real wage numbers have been calculated using the CPI--the consumer price index. Use of the CPI understates economic growth: as relative prices change, people substitute toward items that become cheaper (i.e., iPods) and away from items that become more expensive (i.e., houses with short commuting times), and so wind up better off than CPI-based measures of real income indicate.

But a substantial portion of income goes to expenses not included in the CPI, notably taxes and interest payments, which have increased considerably faster than the CPI for median households. Wouldn't a full picture of changs in income distribtuion have to take that into account, too?

[ctm]

Of course, when we look simply at growth in real wages, we are not fully taking into account technological improvements. So I understand the desire to try to "bump up" recent growth in real wages to try to capture the full picture.

However, don't we have to do the same for earlier periods, then? How much faster were the increases in living standards for, say, the period 1945-73, if we try to bump those up for technological improvements? And then how does the recent performance fare against those earlier periods?

[Aaron]

Consumer Reports kind of hit this nail right on the head 5 or 10 years ago.
They looked at things in three price ranges -low medium and high and what happened over time.
In the low price range, household equiptment- a new fridge, a 27" tv, a washing machine-all of the gadgets dropped and continue to drop in price over time.

in the medium price range, I think the conclusion was that those things- which included cars, held steady or slight increase.

In the high price catagory, things like a house, a college education, or heart surgery, all increased faster then inflation.

I think these trends will continue.

[Slocum]

dilemmanade said, "In the fifties my dad-- high school education, no training-- got an entry level apprentice position at one of the big aircraft companies. On that salary he could support four kids and a wife who didn't work outside the home, and buy a house for us all to live in. He had medical insurance and a pension plan, too."

"I'm supposed to believe my generation is better off because we have ipods? Uh, no."

So you'd trade all the advances in health, education, science, technology, civil rights, medicine, and culture (not to mention income), for a 1950s lifestyle of a high-school degree and a secure blue-collar factory job?!?

Man, I remember when it was the conservatives who thought the 1950s were a golden age and pined for days when women were stay-at-home mommies, and liberals were the ones who believed in progress and were optimistic about the future. How the hell did the Democrats get to be the eyore party?

The Dems have nominated exactly one non-eyore in the past 30 years, and I voted for him twice with enthusiasm. But otherwise it's been nothing but eyores from Carter (king of the eyores) to Kerry. Dammit -- gimme Obama for president, ASAP.

[dilemmanade]

"So you'd trade all the advances in health, education, science, technology, civil rights, medicine, and culture (not to mention income), for a 1950s lifestyle of a high-school degree and a secure blue-collar factory job?!?"

No. And I don't think that's a necessary trade-off, or even a logical one in any way. Those advances didn't require that the working class become poorer and less secure, which it has.

My point is this: The working class is poorer and less secure, and if some statistics say otherwise, then there is something wrong with those statistics.

[mpowell]

Well, I support a single-payer system precisely b/c of the screwed up state of the economic battle b/w healthcare providers and insurers. A battle that is only made more complicated by the fact that healthcare providers are required by law to provide emergency assistance regardless of the invidual's ability to pay.

But I reject the common claim that we are in some way worse off b/c of increased health care costs as a whole. I maintain that those increased costs correspond to a much higher level of care (which is certainly true) and a greater ability to pay. The last point is, of course, debatable, but I am not talking about person by person, but as a society overall.

This would be more apparent if there were an option to pay less for poorer healthcare, but this would never work, policitally.

[trostky]

delemmanade,

Your father may have started as an apprentice, but did he actually raise 4 kids and buy a house on the apprentice's pay? I am skeptical.

On the other hand, I'm kin by marriage to an able young guy -- high school education, no skills -- who got into a union apprenticeship program and is rapidly becoming a quite well-paid HVAC tech who could raise kids and own a home just about anywhere in America except for the Bay Area (where, yes, he lives).

[dilemmanade]

Yes, dad got through his apprenticeship, and became a mechanic. (I didn't mean to imply he was an apprentice his entire career.)

I can believe there are still some similar opportunities for able young men. But unions don't represent but a fraction of the jobs they once did. What's happened to your kin is unusual; when it happened to my dad it was not.

[aiontay]

Six years ago I made roughly the median hourly wage for Kansas, but I was living one state south, in Oklahoma. I didn't miss any meals, I paid all my bills on time, and I made it to every pay day with a little money in the bank from the last check. However, I was single, I carpooled regularly for my 44 mile commute, and lived in a two-bedroom duplex where I split the rent with a friend. Flights across country and international phone calls were not part of my routine. I shudder to think what it would have been like if I was raising two children. Six years later I'm still single and have tacked on about $20 more to my hourly wage, and I still shudder to think what it would be like to be raising two kids.

As for housing Trotsky, I work as a planner in a small suburban community that is a "hot" housing market for the Oklahoma City area. If Dallas and Chicago are backwaters, well, we're even further back. Still, I seriously don't see how people around here afford the houses going up like weeds around me. Even here, folks are using ARMs to buy their houses, and I've heard of folks getting a loan based on 60% of their gross- yes, gross-income. At least two of my co-workers have commented that they couldn't afford to buy their own houses if they had to buy them at the current assessed values they're being taxed on. Maybe that is why those builders and developers aren't selling those houses quite as fast as they were 6 months ago.

I should add that both my parents grew up in rural Oklahoma in the Great Depression, but have ended up quite well off through hard work, education (thanks to the GI Bill on my dad's part), and a growing economy. I'm not so sure my days will end quite as well as their retirement is.

[trotsky]

aiontay,

If you'd like to feel better about your situation, conduct a little exercise using realtor.com: Search for 3-bedroom, 2-bath single-family houses for a maximum of $225,000 in beautiful OK City; then do the same in Sacramento, a city of similar size and one of the more affordable places in Northern California.

I'll spare you the work: In Oklahoma City, there are 1,689 homes fitting the criteria; in Sacramento, there are 4 (and I shudder to think of the mold problems in the floorboards or gang problems on the block for those houses).

Buying a house is a huge expense anywhere, and the first one's often a first house (a large silent second from the Bank of Mom is the only way I got into mine). Simply in terms of affordability, though, count your blessings in OK.

[anne]

Why then do we so seldom think beyond fearsome stereotypes of conditions for workers in France or Sweden or Australia and wonder how to approach such conditions here?

[spencer]

If you look at real family income by quintiles from 1977 to 2004 you see that it has risen 11.7% -- about the same as the real income increase David Leonhardt cites.

But look at the impact of rising income inequality. Over this period the real family income for the bottom three quintiles
only rose 0.7% while the income of the top two quintiles rose 19.0%.

the dividing line between the third and fouth quintile in 2004 was $55,325 in 2004 dollars.

Moreover, the deflator is the CPI-U-RS that incorporates most of the improvements in the CPI since 1978 that eliminate most of the factors the Delong refers to when he says the CPI over states inflation.

[anne]

Though I have often argued as does Brad DeLong that the consumer price index either over states inflation or is at least an accurate reflection, I am increasingly bothered by the incidence of inflation for middle and lower income households. Health care is not easily substituted for and costs have rapidly increased, nor is tuition easily substituted when even public university tuition has risen so rapidly. Michael Harrington over 40 years ago noted the poor pay more. Well, the middle class and poor may pay more now or so I wonder.

[spencer]

Don't forget that the major reason the CPI reportedly overstates inflation is the home price index. But that was changed in 1978 to replace home prices with home owners equivalent rent. Over the long run rent and home prices should move together as both are functions of much the same variables like income.

Over the past decade the homeowners equivalent rent has increased at about a
3% annual rate. but the HPI repeat sale
home price index -- probably the best national measure --has grown at a 7% annual rate. Since home owners equivalent rent accounts for about a quarter of the CPI one can make a very stong argument that over the past decade the CPI has significantly understated inflation.

Of course that may be reversing now.

[j mcgee]

Union membership began to decline in 1973.
And the Business Roundtable started that same year-- to destroy the labor movement and the middle class.

They're doing a heck of a job.

[anne]

Spencer:

"Over the past decade, the homeowners equivalent rent has increased at about a 3% annual rate. But the HPI (repeat sale home price index) -- probably the best national measure -- has grown at a 7% annual rate. Since home owners equivalent rent accounts for about a quarter of the CPI one can make a very stong argument that over the past decade the CPI has significantly understated inflation."

Surely.

[liberal]

mpowell wrote, "I maintain that those increased costs correspond to a much higher level of care (which is certainly true) and a greater ability to pay. The last point is, of course, debatable, but I am not talking about person by person, but as a society overall."

Certainly greater ability to pay plays a big role.

But there's a lot of empirical evidence that spending more on care at some point doesn't lead to improved outcomes. This shows up in comparisons across regions in the US.

[liberal]

"Now, an 11 percent raise over the course of a generation -- which is similar to the national increase -- is not especially impressive."

"Sandwichman" over at MaxSpeak has a post which points out that the 11% might not be really valid because of changes in work force demographics:
http://maxspeak.org/mt/archives/002238.html

Excerpt: "In 1980, the median age of the US workforce was 34.6 years. In 2002, it was 40.0."

[liberal]

Slocum wrote, "People realize that their lives are better than their parents in so many ways--houses and cars are bigger and better, food is cheaper and better, entertainment options are *much* cheaper and *much* more numerous. ..."

This part of your argument I completely agree with, except for the housing part. (House construction might be cheaper in many ways; land rent tends to grow with GDP, and it's going to get worse with all the immigration we've had.)

[Sandwichman]

Further to that point I made on MaxSpeak about demographics:

In Canada real wages were virutally flat from 1981 to 2004 -- a cumulative increase of only 1.1 percent. However, holding age and education constant, real wages fell for 5.8 percent for university educated men and 13.9 percent for non-unversity educated men. There was a 4.8 percent drop for university educated women and a 4.0 percent drop for non-university educated women. "Astonishingly, for all levels of education and for both sexes, workers earned less in 2004 than in 1981." Quote from TD Economics: http://www.td.com/economics/topic/el0505_wages.jsp

[anne]

http://www.td.com/economics/topic/el0505_wages.jsp

A NEW PERSPECTIVE ON WAGES: EDUCATION, GENDER, AND AGE

May 4, 2005

A slew of recent publications and editorials have focused upon the anemic rate of wage growth of Canadian workers over the last few decades. Notably, a recent TD Economics publication reported that real after-tax income per Canadian worker had risen only 3.6 per cent over the last fifteen years – markedly less than the 25.5 per cent growth in real GDP per Canadian over the same period. Similarly, a recent Statistics Canada research paper found that real “median wages of Canadian workers have changed little over the last two decades… …despite the growing experience and educational attainment of the work force.” ...

What then does this seemingly limited return to employees mean? Where is the economic gowing; to investors?

[ben ross]

A technical question which might be very important to this discussion:

Someone in this thread mentioned that employers' 401-K contributions are included in compensation statistics. How do the statistics deal with employees' unfunded defined-benefit retirement plans (especially retiree health care)? Retiree health care is generally unfunded, as I understand it. There has been a vast shift from defined-benefit plans to 401-Ks. If the compensation statistics count the new kind of retirement benefit, but not the old one (or the old one only partially), the statistics could be way off.

[anne]

Benefit erosion is a considerable and subtle labor problem, even to the extent to which the gains to employee administered retirement accounts have long proven inferior to the gains from professional administered company pension accounts though I have not been all that impressed by many of these accounts.

[Sandwichman]

By the way, the growth in real GDP per capita for the US from 1979 to 2004 was 60%. Per employed person it was 50%. (http://www.bls.gov/fls/flsgdp.pdf)

So that 11% wage increase (roughly half of which probably due to age, experience and education) copped a magnificent 22% of the gain. Even that gain was concentrated in the higher income percentiles.

Glass half full of what? Vapor?

[anne]

Sandwichman, thank you and please continue, but what do you attribute to the lack of employee sharing in growth in Canada? I have no ready explanation. Please do continue the helpful comparisons :)

[Sandwichman]

anne asked, "what do you attribute to the lack of employee sharing in growth in Canada?"

That is a huge question and one that could be answered in many different ways. As to the reason for it, I think it has to do with the failure to take more of the productivity gains of the last 50 years as time off.

As to how the numbers have diverged, I suspect it has something to do with asset inflation. Which is to say that some of what has counted as "output" has really been asset inflation that was wrung through the service sector process of adding value, that is to say talking up the price.

A similar thing happened in the last decades of the East European system when factories that actually subtracted value from raw materials nominally made money by keeping the unsaleable inventories on the books at official prices. In Canada, I suspect it's not so much a matter of unsold inventories as of intangibles that are heroically overvalued.

Psst. Wanna buy a slightly used logo?

[anne]

What occurs even more forcefully than before is how essential saving and investing have become whether in Canada or America, difficult as saving may seem in middle class households. As growth in the return to labor lags, even slightly, growth in return to capital and land, then short of newly balancing corporate bargaining strengths against employees investment becomes the only way of balance for employees and employees have to do better at saving and investing.

[anne]

While asset inflation has a mildly ominous tone, there is every reason for assets to continue to increase in value at least as fast as the economy can grow, or as international economies grow, and there is a pronounced need for saving and low cost efficient investment to at least duplicate the returns that could once be counted on from better corporate managed pension plans.

[anne]

Sandwichman's comments are especially interesting to consider further. I am reminded about the surprising labor cost figures set out by executives of Delphi. The costs are suprisingly high, but reflect an accounting that attributes every possible corporate cost to labor, rather than just telling us how much employees have been paid.

[Sandwichman]

anne wrote, "labor cost figures... reflect an accounting"

Yes, that's an extremely important point. Accounting is by definition a collection of conventions, some of which may be less defensible than others. We're not talking physics here, let alone pure mathematics. Specifically, labor cost accounting evolved and became consolidated in the period after World War II within a very specific context of collective bargaining, statutory requirements and tax structures. I'm sure very few people outside of industrial relations know that unions and management have adopted different protocols for costing out a proposed contract. Both methods incorporate what I consider basic errors, which nevertheless serve their user's tactical rhetorical strategies. I'm going to be talking more about this over at MaxSpeak as soon as I have the time to sit down and write out a multi-part series.

[anne]

Dear Sandwichman, nice :)